Banking the Next Billion
Digital Financial Inclusion in Action
If you live in the developed world, have a think about the last time you went to your local bank branch. Did you feel fortunate to be there? Did you only really get excited if you were able to get in and out of the building in five minutes flat? How about making a payment online? That’s usually an infinitely better experience and time saver versus going to an actual brick and mortar bank, but did you rejoice in the knowledge that your money was sitting safely in a financial institution? In developed markets, a large majority of the population — >93% in almost all cases — is ‘banked’ meaning they have access to banking and credit. But that is not necessarily the case in emerging markets.
According to the World Bank, almost 1.7 billion people — nearly one-third of the global population — weren’t included in the formal financial system in 2017. When asked, people give a whole range of reasons as to why they don’t use financial services — they don’t trust banks, it’s too far to travel to one, it’s too difficult to open an account or the don’t have the proper documentation. But more than 50 percent of the time, the reason they chose to avoid banking was that they didn’t have enough money to meet the minimum balance requirements or they couldn’t afford the fees and charges that were associated with traditional accounts.
In the report that follows, we explore several financial inclusion initiatives, with a particular focus on digital initiatives, which are helping to increase the number of ‘banked’ individuals. We believe we’re living in a period of unprecedented growth in financial inclusion and that by 2022, an additional 700-800 million adults will be included in the formal financial system, leaving just 15% of the global population unbanked (down from 49% in 2011). We also talk to a variety of experts from established leaders and policy makers to emerging digital challengers about how they are helping to transform financial inclusion.
Several financial sector business models have been at the forefront of trying to bridge the inclusion gap and we explore several traditional and non-traditional initiatives that are playing a key role in bridging the unbanked population gap. While global regulators have generally been supportive of newer models like mobile money or microfinance, identity issues have been a roadblock in several cases. New upcoming unique identity models are changing the way people bank and national identity programs have facilitated biometric information to tackle these issues.
Mobile money is a technology that allows people to retrieve, store and spend money using a mobile devices. Thanks to a combination of simplicity, convenience, and safety, mobile money is becoming an alternative to bank accounts and payments in several emerging and frontier markets. Mobile money has grown at a rapid pace and mobile money operators are replacing traditional bank branches.
Several BigTech firms today have a larger customer base and broader geographic reach than leading financial institutions and with their robust customer behavior data, could increasingly provide financial products. Finally, microcredit continues to grow, accompanied by new products and enabled by mobile technology. By designing financial products and methodologies based on an understanding of their client needs and capacity, Microfinance Institutions have overcome some of the biggest obstacles to seeking access to credit or savings products.
Authors: Ronit Ghose, CFA,Rahul Bajaj, CFA,Mohammed Khallouf, CFA,Ashwin Shirvaikar, CFA,Robert Annibale,Jorge Rubio Nava,